What is a Tax-Free Savings Account?

A Tax-Free Savings Account (TFSA) is a Federal Government introduced registered savings product that allows taxpayers to earn investment income tax-free. A TFSA allows Canadian Residents age 18 to set money aside in eligible savings accounts or investment vehicles and watch those savings grow tax-free throughout their lifetime. The TFSA is offered to complement existing registered products such as the RRSP and RESP, which have a more defined purpose (saving for retirement and post-secondary education costs respectively).

There are no restrictions on the way TFSA funds (contributions and earnings) may be used (i.e. purchase a car, renovate a home, start a small business, take a family vacation, or just save for a rainy day). All income levels and all walks of life can benefit from a TFSA.

Top 5 reasons to invest in a Tax Free Savings Account:

  • You do not pay any income taxes on interest earned, regardless of how much your TFSA earned.
  • You can access your money when you need it; there are no penalties for making withdrawals.
  • Everything you withdraw from your TFSA can be replaced the following year; meaning there is no penalty for having to dip into your savings down the road.
  • Any contribution room you do not use in the current years carries over to future years.
  • You can take out as many different TFSA products as you like, so long as the combined balances do not exceed your contribution limit for the year. This allows you to take advantage of all the different products offered under the TFSA program including, Term deposits, Index Linked products, and variable rate accounts.

How much can you contribute to a TFSA per year?

 Each year you could contribute an amount up to your contribution room for the year. The TFSA contribution room will be determined by the CRA for each eligible individual who files an annual income tax return. Your contribution room would be made up of three amounts:

First: Each year since 2009 you would be allocated and allowed to contribute at least $5,000. Prior to and after 2015, this annual amount is indexed to inflation and rounded to the nearest $500 on a yearly basis.


Annual Contribution Amount

2009 - 2012 $5,000/Year
2013 - 2014 $5,500/Year
2015 $10,000
2016-2018 $5,500/Year
2019-2022 $6,000/Year
2023 $6,500
2024 $7,000
Total Contribution Room $95,000

Second: Any withdrawals made during the year would be added to the contribution room for the next year.

Third: Any unused contribution room from the previous year would be added to the contribution room for the year.

TFSA Unused Contribution Room
When a TFSA Holder contributes less than the maximum contribution limit, the difference is referred to as unused contribution room.

  • Unused contribution room will accumulate each year.
  • Unused contribution room is carried forward indefinitely, allowing the Holder to catch up in the future.
  • A TFSA withdrawal will increase the contribution room for the year after withdrawal. As a result, when amounts are withdrawn from a TFSA they can be re-contributed in the future when funds become available.
  • Canada Revenue Agency will confirm the contribution room on the annual Notice of Assessment.

For example: If you had $47,000 saved in a TFSA in 2023 and needed to withdraw $10,000 in that same year, you will not be able to replace that $10,000 until 2024.

In 2024, you will have:

  1. The Standard annual increase in contribution room for the new year ($7,000 for 2024)
  2. Any withdrawals from the previous year ($10,000 in this example)
  3. Any unused contribution room from 2023 ($41,000 in this example)

Total of $58,000 allowed to be added to a TFSA in 2024. This will bring your total contribution back up to the maximum contribution limit of $95,000 for 2024.


What are my options for a TFSA?

The types of eligible investments are restricted under the Income Tax Act and include;

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* Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. Credential Asset Management Inc. and Northwest & Ethical Investments L.P. are wholly owned subsidiaries of Aviso Wealth Inc. Northwest Funds®, Ethical Funds® and NEI Investments® are all registered marks and trademarks owned by Northwest & Ethical Investments L.P.